Where to Find the Best Factoring Companies

Jennifer Thomas

Steady cash flow is important for a small business. To grow and pay the bills, business owners need a regular stream of revenue. But what happens if a business owner has a lot of potential income tied up in unpaid invoices?

Where to find the best factoring companies

Some owners may turn to business credit cards or a line of credit to smooth over cash flow gaps. Others might consider taking out a bank loan. But small business loans and lines of credit can be tough for many businesses to get. Large banks approved just 56 percent of the loan applications they got from small businesses in 2017. For newer businesses or ones without good credit history, owners may have to look elsewhere.

One option for businesses that have a lot of potential income tied up in unpaid invoices is income factoring. It’s not the cheapest option, and not nearly as common as other types of financing (just 4 percent of small businesses in the Federal Reserve’s 2017 Small Business Credit Survey applied for invoice factoring), but it could be a good option for a business with cash flow problems, unpaid invoices and not much time to wait for the invoice to be paid.

Company

Fees

Funding amount

Advance Percentage

Time to funding

BlueVine

1% standard rate per week for a minimum of three weeks

$20,000 to $5 million

85-90 percent

As soon as 24 hours

Paragon Financial Group

1.25-2% per 30 days

Not provided by lender

80-90 percent

24-48 hours

Universal Funding

Starts at 0.55%, typically no higher than 2% for the first 30 days

$25,000 to $5 million

Up to 95 percent

As soon as 48 hours

New Century Financial

Not provided by lender

Up to $5 million

Up to 90 percent

As soon as 24 hours

What is invoice factoring?

Invoice factoring is when a business sells its unpaid invoices to a factoring company in exchange for a cash advance. The advance is usually a percentage of the total invoices, usually between 75 to 90 percent. Once a customer pays an invoice, the factoring company sends the remainder of the invoice value, minus a fee it charges.

The factoring fee is usually between 3 to 5 percent of the total value of the invoice. Some factoring companies will charge a factoring fee for every week until the invoice is paid while others will simply take that percentage off the top of the amount of money they held back. Some companies use a tiered system where the longer it takes your customer to repay the invoice, the higher the factoring fee. Knowing the fee structure of an invoice factoring deal is very important in figuring how much an invoice factoring agreement actually costs.

Unlike many other types of financing, your personal credit isn’t as important. The factoring company will be more concerned with your customers’ credit history and how well they pay their bills.

Using invoice factoring means you’re automatically forfeiting a percentage of your profits, but it might be necessary if you’re having cash flow problems and you don’t have the time or the qualifications to get a business line of credit or a bank loan.

Some factoring companies will take complete control over your invoices, including collecting on your unpaid invoices. That’s both a plus and a minus. As the business owner, you no longer have to worry about getting your customers to pay those invoices, but it could be confusing or off-putting to your customers to be contacted by a different company for payment.

So what happens if your client doesn’t pay? That depends on the factoring company you’re working with. Recourse factoring is when the factoring company can seek payment from you if your client doesn’t pay. Non-recourse factoring means you get to keep the cash advance even if your client doesn’t pay. However, some factoring companies that offer non-recourse factoring require you to sign a personal guarantee.

Choosing the invoice factoring company for your business

Finding a trustworthy factoring company is very important. You want to make sure it is as upfront as possible about how much it will charge you for buying your invoices and how much it will charge you each week. For example, does it charge a flat factoring fee regardless of how long it takes them to collect on an invoice, or will you be charged a fee for each week until the invoice is paid? Are you on the hook for an unpaid invoice, or do you get to keep the advance?

If you want the factoring company to take control over your invoices, including collecting the money from your clients, you’ll want to make sure it uses professional methods. You don’t want to damage your company’s reputation with your clients.

How to apply for invoice factoring

Unlike most loans or other types of financing, your personal credit history won’t matter nearly as much to be approved for invoice factoring. Many factoring companies don’t have a minimum credit requirement. That’s because they’re more concerned with the creditworthiness of your customers and how much revenue you have coming in each month.

In general, the documents you’ll likely have to provide to apply for invoice factoring include:

BlueVine

Started in 2013, BlueVine offers invoice factoring as well as small business loans. There are no hidden fees with BlueVine; just one flat rate for both the company’s invoice factoring and line of credit. To qualify for BlueVine’s invoice factoring, you’ll need a personal credit score of 530 or better, three months in business operation and business revenues of at least $10,000 a month.

Where BlueVine stands out

Unlike most factoring companies, if your account stays in good standing, BlueVine will not take over your company’s invoices. You still maintain control over the invoices and are responsible for collecting the payments, so your customers won’t know that you have factored your invoices. You might consider that a plus or minus depending on if you want to collect on your invoices or not.

Where BlueVine falls short

BlueVine requires both a lien and a personal guarantee to secure the funding. So if your customer doesn’t pay their invoice, you still need to pay off the balance to BlueVine. The businesses that can use BlueVine’s invoice factoring are limited to B2B and B2G companies. Medical and health care-related companies are not eligible.

Additional benefits of BlueVine

BlueVine offers a quick approval turnaround time and funding within just a few hours after approval. You don’t have to provide any documentation if you agree to connect your bank account directly to BlueVine’s system.

Paragon Financial Group

Founded in 1994, Paragon Financial Group offers invoice factoring targeted at B2B and B2G companies with monthly revenues of between $30,000 to $10 million per month. Paragon offers non-recourse financing; however, it does require a personal guarantee.

Where Paragon Financial Group stands out

Personal credit isn’t a factor in Paragon’s decision to approve invoice factoring. IRS tax issues or liens also will not disqualify a business from being approved.

Where Paragon Financial Group falls short

Paragon Financial Group does not disclose its fees on its website, and the companies that are eligible for financing are also limited to B2B and B2G companies. The company is slower to provide funding post-approval. The initial funding may take as long as three to 10 business days, although you can expedite some of your invoices. It also has a higher minimum monthly revenue requirement ($30,000) compared to many other factoring companies.

Additional benefits of Paragon Financial Group

Paragon Financial Group does not have a minimum credit score requirement. It also offers credit protection, so it will not require you to repay an invoice if your customer doesn’t pay because of bankruptcy.

Universal Funding

Founded in 1998, Universal Funding has provided more than $2 billion in financing. Universal Funding works with B2B companies in business services; printing and publishing; wholesale and distributing; manufacturing and fabrication; transportation/trucking; and oil/gas/energy/mining industries. However, it is also open to working with B2B companies in other industries.

Where Universal Funding stands out

Unlike many factoring companies, Universal Funding has a monthly factoring fee, versus a weekly fee, which could potentially save you money. The company also offers a higher potential funding amount (95%) than many other companies.

Where Universal Funding falls short

If an invoice goes unpaid after 90 days, you’ll have to swap that invoice out for another one, or buy the invoice back. Universal Funding also has several additional charges, including a $35 credit approval fee and a $50 lock box fee.

Additional benefits of Universal Funding

The company does a nice job on its website of spelling out its process for collecting on your customer’s invoice, including introducing itself via a letter on your company letterhead.

New Century Financial

New Century Financial offers invoice factoring to businesses in the manufacturing, distribution, staffing, service, technology, energy, transportation and oil and gas industries. It offers invoice factoring funding within hours of approval.

Where New Century Financial stands out

The company doesn’t have any additional charges or hidden fees for invoice factoring, not even a wire transfer fee, which is common for many factoring companies.

Where New Century Financial falls short

New Century Financial doesn’t list its factoring rates on its website.

Additional benefits of New Century Financial

New Century Financial does not have a minimum credit score requirement.

The bottom line

Invoice factoring can be a great business tool for companies that have several outstanding invoices and want or need to boost their cash flow. That especially makes sense for companies that have very creditworthy customers. Invoice factoring is also very attainable for young businesses or owners who have poor credit. However, it can be an expensive form of financing. To know what it will cost you, make sure you have all the information such as what fees are charged, how the factoring fee is structured and what happens if your customer doesn’t pay.